Here is a brief guide on what self employed car expenses you can claim (please note this is different from the rules for limited company directors). If you want some information on other travel expenses you could claim then have a look at the list of my top 5. Car expenses are a bit of a confusing area, especially as there are two different ways you can do it! If you want the full low down then sign up for my self employed car expenses guide.
As a sole trader you have two options to claim a tax deduction for your business miles.
1. Actual motoring expenses
You need to keep a detailed mileage log for the year for all of your mileage – business and personal – and at the end of the year add up how many business miles you have done, and how many personal miles. If a trip is dual purpose (so you go to town to post a package for business, and you also get your hair cut) then you can’t claim its for business. You also can’t claim it if you are travelling to your normal place of work – so if you always go to the same office, that isn’t tax deductible.
Keep a list of, and receipts for, all of your motoring expenses over the year including:
- Car insurance
- Road tax
- Repairs and maintenance
At the end of the year, calculate your business use percentage – this is equal to your business miles divided by your total miles.
Your tax deductible expense is then your total motoring costs multiplied by your business use percentage.
Make sure you keep your motoring expenses receipts and your mileage log with your tax records so you can prove how you calculated your motoring expense if HMRC ever ask.
You can also claim “capital allowances” for the cost of your car. This is a more complicated area so I won’t tackle it here, download my car expenses guide or ask your accountant!
This involves quite a lot of work. The easier approach is:
2. Claim business mileage
For the 2012-2013 tax year and earlier you can only do this if your turnover as a sole trader does not exceed the VAT threshold (currently £79,000). From 2013-2014 onwards you are allowed to do this even if your turnover is above the threshold.
You will need to keep a detailed mileage log, but this time you only need to track business miles. The same rules apply as above – so a dual purpose trip isn’t allowable, and you can’t claim for travel to your normal place of business.
You can then claim business mileage calculated by taking your business miles and multiplying that by 45p per mile for the first 10,000 miles for a car or van, and 25p a mile thereafter. You can also claim 24p per mile for a motorbike, and 20p per mile for a bike (no excuse now not to cycle to work!)
You have to be consistent with which approach you use – so if you started off claiming the allowable rate per mile for one car, you have to keep doing it that way until you replace the car.
If this all sounds a bit too complicated then sign up for my Sole Trader Support Package to get some more detailed advice for your own situation. This is an area where sole traders often miss out on getting the right tax deduction, so its worth putting the work in to get it right.